Asset managers would find it harder to fulfil fiduciary duties if they had to hold active accounts with central counterparties (CCPs), an industry body warned.
The European Fund and Asset Management Association (Efama) objects to mandated active accounts – a proposal that forms part of European Commission plans to update the European Market Infrastructure Regulation – known as ‘Emir’ – and make clearing activity in the EU more attractive.
While the trade body supports measures to increase the attractiveness of EU CCPs – including simplified product approvals and greater margin model transparency – Efama argues that mandated active accounts would undermine the objective of maintaining a competitive and efficient clearing ecosystem.
This is because asset managers “require a free choice of CCP in order to fulfil their fiduciary duty to act in their client’s best interest and obtain the best investment outcome”, Efama said.
The trade body suggests that the measures proposed to enhance CCP attractiveness should draw greater clearing activity without the need to introduce an active account obligation.
Efama also argues that mandated active accounts create diversion to a smaller liquidity pool, which would increase spreads and reduce the netting benefits available to clearing clients, with the impact passed on to the end investor.
It also highlights the required operational build to implement active accounts, with many clearing clients needing to move from a mono-clearing channel to a dual-clearing channel.
However, the proposed removal of foreign-exchange forwards and swaps from the clearing threshold calculation was highlighted as “helpful”.
Additionally, the association said the conversion of the temporary exemption from margining requirements for single stock and equity index options into a permanent exemption creates fairness and ensures competitiveness.
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